World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Thursday, February 4, 2010

Equity futures are down this morning, below is a 30 minute snapshot of the DOW on the left and 5 minute S&P on the right with the overnight:

The dollar and bonds are both much higher, oil and gold are lower.

The Monster Employment Index for January fell from 115 to 114. The weekly Jobless Claims came in at 480,000, much higher than the forecast of 455,000, and up 10k from last week. This is a horrid number after this much time, once again showing that the effects of debt saturation and the craziness of the attempts to force more debt into the system:

HighlightsLayoffs appear to have picked up through January judging by disappointing jobless data. Initial claims in the Jan. 30 week rose 8,000 to 480,00 with the prior week revised 2,000 higher to 472,000. Importantly, the Labor Department said there are no special factors in the latest week. The four-week average rose for the third straight week, up 11,750 to 468,750. The average hit a low of 440,750 in early January before the run higher. A month-to-month comparison of the four-week average against December shows little change. Equities and commodities fell in immediate reaction to the data.

Continuing claims rose 2,000 to 4.602 million in data for the Jan. 23 week. The four-week average fell 51,000 to 4.618 million. The unemployment rate for insured workers is unchanged at 3.5 percent. The change in continuing claims, a mix of new hiring and the expiration of benefits, is harder to read than the change in initial claims. In data for the Jan. 16 week, 281,442 filed emergency unemployment compensation claims bringing the total to 5.632 million. Extended benefit claims fell 39,1239 to 222,833.

Getting close to a broken trend line on that chart? Hmmm, a,b,c…

And still related to the labor statistics, Productivity numbers are out and it’s yet another “miracle” jump in productivity as more people hit the street, yet more inventory is bought and shipped in from overseas??? Huh? Yes, that’s what I said, I am raising the B.S. flag on this productivity number as well. Sorry, the GDP report was false, and now you are seeing those false numbers affect the productivity numbers in yet another example of bad data rippling through the economy and giving the pundits some more bad data with which to overestimate the condition and health of our economy. This report is nonsense. However, note the drop in labor costs…

HighlightsWith the earlier announced surge in fourth quarter real GDP, today's outstanding productivity report should not be much of a surprise. An output jump led to a fourth quarter spike in productivity and drop in unit labor costs. The initial estimate for fourth quarter nonfarm production came in at a strong 6.2 percent annualized boost, following a revised fourth quarter 7.2 percent gain. The latest productivity number marginally beat the market forecast for a 7.0 percent increase. Unit labor costs declined again, dropping an annualized 4.4 percent in the fourth quarter, following a revised 1.5 percent dip the prior quarter. The consensus expectation called for a 3.8 percent decrease in costs.

The fourth quarter boost in productivity reflected a 7.2 percent surge in output, following a 2.2 percent gain the prior quarter. Hours worked actually rebounded a modest 1.0 percent after a 4.7 percent annualized drop in the third quarter. Compensation cost inflation is easing as compensation rose only 1.5 percent, following a 5.5 percent boost in the third quarter.

Year-on-year, productivity improved to up 5.1 percent in the fourth quarter from 3.8 percent in the third quarter. Year-ago unit labor costs decreased to minus 2.8 percent from down 1.2 percent in the prior quarter.

The latest productivity and costs report is good for near-term corporate profits. However, they come at the expense of a continuation of a lack of hiring. Analysts will be lowering their expectations of recovery in the labor market. Equity futures dipped on the news. Also, a rise in initial jobless claims weighed on stock futures.

Next up for an update on the labor market is tomorrow's employment situation report for January which will include benchmark revisions. We could see sharp downward revisions to 2009 if the Labor Department overestimated the impact of net growth of business establishments.

Revisions for 2009? Oh dear followers of the Economic Edge, you are going to love this one. For how long have we been talking about false numbers and bad statistics? To my surprise I load up CNN and see a headline with the words “The Great Recession” (still can’t call it a depression) and read the following:

NEW YORK (CNNMoney.com) -- As bad as the government's jobs readings numbers have been during the Great Recession, we'll soon find out the real situation likely was worse.

Much worse.

Job losses during the recession may have been underestimated by close to a million jobs. So instead of employers cutting just over 7 million jobs from their payrolls since the economic downturn began in December 2007, it's expected that the Labor Department's new estimate will be a loss of 8 million jobs.

"It's an enormous understatement of the severity of the crisis," said Heidi Shierholz, labor economist with the Economic Policy Institute, a union-supported think tank. "It confirms that things were actually worse on the ground than what the reports suggested."

The new reading will come when the economists at the department's Bureau of Labor Statistics release their annual revision of U.S. payrolls from April 2008 through March of 2009 Friday, using data that wasn't available as the monthly readings were being estimated and reported.

Typically the revision results in only a slight change in the previous estimate -- about 0.1% to 0.2% of the total number of jobs. But there was nothing typical about the twelve month stretch that ended last March.

That period included the bankruptcy of Lehman Brothers, the seizing up of financial markets and the U.S. economy toppling close to the brink of another depression.

Battle brews over hourly jobs

The government's current readings show that 4.8 million jobs were lost in those twelve months, more than twice the jobs lost during any comparable April-March period going back to 1939, when the numbers first started to be compiled.

But the department has already given a preliminary look at this Friday's revision, and it says it believes it will show 824,000 fewer workers on payrolls than the current estimates. That would be the biggest downward revision in the 30 years for which comparisons of those adjustments is possible.

"There's certainly a disconnect between economists like myself who say the recession ended in May or June and the person on the street who says the recession hasn't ended," said John Canally, economist LPL Financial. "This report is only going to widen that gap."

Canally said the big revision is one reason that it's difficult to estimate what Friday's report will show about the labor market in January, or how investors will react to the report.

Economists surveyed by Briefing.com are forecasting a net gain of 13,000 jobs in January, following a loss of 85,000 jobs in December. The unemployment rate is expected to remain at 10%.

Economists say it shouldn't be a surprise that there is such a big revision this time, given the severity of the economic downturn.

"Most of the time it's reasonably accurate. But when there are very sharp changes in the economy, they tend to miss and it becomes a big problem," said Dean Baker, co-director of the Center for Economic and Policy Research.

The problem is that BLS models appear to have grossly overestimated the number of new businesses that opened during the recession.

The payroll number is created through a monthly survey of employers, but that survey misses employers who start a business during the course of the year, as well as those who have gone out of business.

So every month BLS uses what is known as a birth-death adjustment to estimate the number of jobs created or lost from that turnover in business.

During the April 2008-March 2009 period, that adjustment added jobs to the overall payroll number in 11 of the 12 months, resulting in a net gain of 717,000 jobs.

"When the numbers were coming out, the idea that we had a significant number of businesses being created didn't make sense," said Baker.

There is a concern that this problem didn't end in March of 2009. In fact, the adjustment added even more jobs -- 990,000 -- in the nine months reported since then.

So another big revision in the payroll numbers could be looming a year from now. That means this Friday's report should give pause to anyone who is depending on the official numbers to signal real improvement in the economy.

Nice job, mainstream, only about two years behind the curve. Think you’ll be reading about how DEBT SATURATION is the root cause two years from now? Hey, you never know, it’s going to be sooner than that if the Swarms are half as successful as I think they will bee.

Here’s a little beauty that friend, Don, sent me in a chain email. This one is different in that it was attached to a Wall Street Journal article:

You read that headline correctly. Unfortunately, the Obama Administration is financing oil exploration off Brazil.

The U.S. is going to lend billions of dollars to Brazil's state-owned oil company, Petrobras, to finance exploration of the huge offshore discovery in Brazil's Tupi oil field in the Santos Basin near Rio de Janeiro. Brazil's planning minister confirmed that White House National Security Adviser James Jones met this month with Brazilian officials to talk about the loan.

The U.S. Export-Import Bank tells us it has issued a "preliminary commitment" letter to Petrobras in the amount of $2 billion and has discussed with Brazil the possibility of increasing that amount. Ex-Im Bank says it has not decided whether the money will come in the form of a direct loan or loan guarantees. Either way, this corporate foreign aid may strike some readers as odd, given that the U.S. Treasury seems desperate for cash and Petrobras is one of the largest corporations in the Americas.

But look on the bright side. If President Obama has embraced offshore drilling in Brazil, why not in the old U.S.A.? The land of the sorta free and the home of the heavily indebted has enormous offshore oil deposits, and last year ahead of the November elections, with gasoline at $4 a gallon, Congress let a ban on offshore drilling expire.

The Bush Administration's five-year plan (2007-2012) to open the outer continental shelf to oil exploration included new lease sales in the Gulf of Mexico. But in 2007 environmentalists went to court to block drilling in Alaska and in April a federal court ruled in their favor. In May, Interior Secretary Ken Salazar said his department was unsure whether that ruling applied only to Alaska or all offshore drilling. So it asked an appeals court for clarification. Late last month the court said the earlier decision applied only to Alaska, opening the way for the sale of leases in the Gulf. Mr. Salazar now says the sales will go forward on August 19.

This is progress, however slow. But it still doesn't allow the U.S. to explore in Alaska or along the East and West Coasts, which could be our equivalent of the Tupi oil fields, which are set to make Brazil a leading oil exporter. Americans are right to wonder why Mr. Obama is underwriting in Brazil what he won't allow at home.

So, the U.S. is going to lend a Brazilian oil company $2 Billion dollars. Let’s just stop right there… what gives our politicians the right to lend money to foreign companies? Where does it say that’s okay in our rule of law? Okay, but let’s follow the money trail a little here. It turns out that the largest stockholder in Petrobras is American George Soros, who was one of President Obama’s most generous financial supporters during his campaign. Now there’s change you can believe in!

Can you say “special interest?” I thought you could. Please, PLEASE, go to www.SwarmUSA.com and register for the Swarms, help enact Freedom’s Vision which will secure our money, our freedom, our future! Or, for those having a difficult time following it all, “It’s the DEBT, stupid!”

Speaking of debt, it appears that the E.U. has agreed to backstop Greece. But now Spain and Portugal are in the spotlight, each are riddled with more debt than they can ever hope to repay. You can just see the debt saturation and the waves of damage rippling around the globe. Monetary reform IS COMING. Let’s get out there and take the money power back from the greedy and crazies who are destabilizing the world.

Where are the markets now? Right back on the 1,080 support level, eating away at support. This move looks like the wave (b) we’ve been expecting. It should find support above the previous low and then bounce upwards in wave (c) which should be over by next week. The setup? I think the jobs report tomorrow may do it. The CNN article today is the setup to expect horrid, it won’t be so bad and wave (c) may begin off this level later today or tomorrow. If not, then there’s always another Monday ramp job to kick it off.

The other, more bearish, alternative is that wave 2 is already complete, the a,b,c having already happened. I doubt that, but it's possible. We would know if the markets break the prior low. On this 30 minute chart of the SPX just after the open you can see that we made a perfect 38.2% retrace and are now falling away:

It would be quite bearish if we do make a new low here...

Beware the beautiful woman from the IMF who is bearing the gift of DEBT. If she appears at your nation’s door, be sure to tell her NO!